Can’t Take the Politics Out of Politics

While this is all true, there is a sense that Summers’ views shifted as well. Many observers point to the op-ed columns that Summers wrote for the Financial Times in 2007 and 2008, which presented a more progressive vision of the economy than he had previously articulated. In one from June 2008, after Bear Stearns collapsed, he noted that “self-regulation is deregulation” — a shift from his previous position on derivatives — and called for a new regulatory regime that would end the problem of “too big to fail” by liquidating failing banks.

“One mistake that progressives have made is to not recognize how much the ground has shifted towards progressives in the last 10 years,” Lawrence Mishel, director of the progressive Economic Policy Institute says. “Larry has moved along with the center-left.”

Consider the idea that our long-term deficit problem is one of health-care cost, not entitlement spending. The concept originated among progressives but is now championed by Summers. He was also a strong advocate of rescuing General Motors and Chrysler, an economic necessity that called for productive government intervention in the economy. Geithner and Summers also clashed over dealing with insolvent financial institutions last spring, with Summers advocating that institutions revealed to be insolvent should face harsher consequences; Obama deferred to his treasury secretary.

Fernholz links some of this, rightly in my view, to the fact that Summers is more of a “political” animal than the top Treasury officials are. The impression I get is that Secretary Geithner and his policy advisors didn’t fully grasp the fact that economic crisis-management was something of an iterated game between technocrats and politicians in which one set of actions could create political constraints that foreclosed future options. Consequently, even though the measures taken during the winter of 2008–9 have largely succeeded, they’ve also created a political context in which it’s hard to do anything else. A more punitive, more populist approach back then would have had some downsides, but it might have left the door wider open for measures to deal with the situation we’re now facing.